Contents
Key events:
Guy Foster, chief strategist at wealth manager Brewin Dolphin, agrees that the impending departure of Boris Johnson will have a limited impact on London’s stock market.
“Although this Westminster event may seem momentous, it has very little impact in the financial markets. The impact on treehouse builders, Westminster-based wine merchants and flat renovators is not discernible in the performance of the FTSE 100.
The prime minister’s impending departure, by hook or by crook, was very much anticipated. Furthermore it is not obviously going to lead to a dramatic change in policy.
The most one could say is that a new Conservative prime minister would likely have a fiscally conservative approach than the outgoing one, but we don’t know to what extent.
Globally operating companies will be largely completely immune to this news, Foster adds:
For more domestically focussed companies it’s not clear whether there will be any material impact.
Movements in the pound have been marginal and UK government bonds are outperforming those in other European states but gas supplies and the war in Ukraine remains the most critical determinant of relative European bond performance.”
A surge in mining companies, rather than Boris Johnson’s looming resignation, is the main factor pushing up shares in London.
Glencore (+7.5%), Anglo American (+7.4%) and Antofagasta (+5.6%) are leading the FTSE 100 risers, followed by oil giant BP (+5.6%).
They’ve lifted the blue-chip FTSE 100 index up nearly 1.3%, or 90 points, to 7196, as it claws back losses during Tuesday’s slide.
Reuters says hopes of fresh stimulus measure in China are lifting markets:
Bloomberg reported, citing unnamed sources, that China’s Ministry of Finance was considering allowing local governments to sell 1.5 trillion yuan (£186bn) of bonds in the second half, an acceleration of infrastructure funding aimed at shoring up the economy.
UK property prices rise at the fastest rate for 18 years – full story
Julia Kollewe
House prices in the UK rose at the fastest annual rate in 18 years last month as demand – especially for larger homes – continued to outstrip the number of properties on the market.
Halifax, one of the country’s biggest mortgage lenders and part of Lloyds Banking Group, said the market “defied any expectations of a slowdown”, with prices rising year on year in June by 13%, the highest since late 2004.
Prices rose 1.8% compared with May, which was the biggest monthly rise since early 2007.
A typical property now costs £294,845, another record high, as prices continue to rise despite the cost of living crisis. House prices have risen every month over the past year and have climbed by 6.8% so far this year, or £18,849 in cash terms.
Russell Galley, the managing director of Halifax, said:
“The supply-demand imbalance continues to be the reason house prices are rising so sharply. Demand is still strong – though activity levels have slowed to be in line with pre-Covid averages – while the stock of available properties for sale remains extremely low.
Here’s the full story:
And we have reaction earlier in the blog, from here.
UK companies have lifted their expectations for pay rises, according to a Bank of England survey.
British employers’ expectations for pay growth in the coming 12 months increased to 5.1% from 4.8% in May.
The survey also found that recruitment difficulties are still widespread, with 88% of firms finding it harder to recruit new employees compared to normal.
Two-thirds reported that it was ‘much harder’, which was the highest since the question was first asked in October 2021.
Overall levels of business uncertainty edged up in June, with Brexit overtaking Covid as a leading worry for businesses.
The BoE says:
For the first time since the onset of the pandemic, Brexit was a larger source of uncertainty for panel members than Covid. 25% of respondents cited Brexit as a top-three source of uncertainty in June, up 5 percentage points on May.
Yesterday, BoE chief economist Huw Pill pledged the central bank would “deliver inflation back to its 2% target”.
Although Johnson has agreed to step down as Conservative leader, he wants to stay on as PM until the autumn when a new Tory leader is in place.
That’s not guaranteed — two ex-ministers have told the Guardian they think it not possible for Johnson to stay till then, so a caretaker PM is needed.
Matthew Ryan, head of market strategy at global financial services firm Ebury, says that hopes of avoiding “an ugly exit from Downing Street” did give the pound a small lift:
So far, GBP has taken the political uncertainty in its stride, and actually posted modest gains this morning on the headlines that Johnson was planning to resign.
Markets were already fully expecting him to go, but news of an imminent resignation, and the avoidance of a likely messy and potentially ugly removal from office, has given the pound a modest leg up.
But until a clear favourite to replace Johnson emerges, the City won’t have a clear understanding of potential policy implications.
And even then, sterling’s value will be driven more by UK recession concerns and Bank of England monetary policy, Ryan adds.
The City will be relieved that Boris Johnson is to quit, says Walid Koudmani, chief market analyst at financial brokerage XTB.
“The resignation of Boris Johnson as UK PM will breath a sigh of relief for UK investors as it curtails the uncertainty of a government in name only.
We saw some instant buying in GBP [the pound] which gained against the Euro as investors reacted to the news of his impending resignation.
Sterling is up 0.25% against the euro this morning to its highest since mid-June at €1.174, as well as gaining against the dollar.
Koudmani adds, though, that Johnson’s successor faces a massive challenge:
Make no mistake however, the GBP remains severely weak due to the dire state of the UK economy which is underperforming its peers, likely to enter into a recession while the Bank of England refuses to hike interest rates aggressively to deal with the escalating inflation.
The new Prime Minister – whoever that is – has a massive job on their hands.”
Pound rises as Boris Johnson agrees to resign
Sterling has rallied a little on reports that Boris Johnson is to resign.
The pound has risen to $1.1980, up half a cent this session, as the news breaks that Johnson is expected to resign today.
His office says he will make a statement to the country.
This follows a further flurry of ministerial resignations this morning (including Brandon Lewis, Northern Ireland secretary), and the blow of newly appointed chancellor Nadhim Zahawi called on Johnson to quit.
But that still leaves sterling near its lowest level since the pandemic, dragged down by recessions concerns:
The blue-chip FTSE 100 index is having a solid morning too, up 1.2% so far.
Naeem Aslam of Avatrade says:
Sterling has moved higher on the back of the news that Broexit is happening—Boris is going to leave the office. There is no doubt that Boris Johnson has failed the public on many occasions and the fact that he will be leaving is helping the currency and FTSE 100 for now.
However, political uncertainty has increased as a large number of political cards will come into play where the new Prime Minister may try to persuade public by adopting more loose fiscal policy which could make the BOE’s job even more difficult which is trying to bring it down.
Andrew Sparrow’s Politics Liveblog has all the action on another historic day in Westminster:
Jet2 also predicted that holiday prices could be squeezed in future, as travellers will have less money to spend on trips:
Inflationary pressures coupled with the uncertain UK economic outlook for consumers, lead us to conclude that in the medium term prices are likely to come under some pressure.
However, it agues it has “the right product for these tougher times”.
The end-to-end package holiday is a higher yielding, resilient and popular product in difficult economic times and the Mediterranean and Canary Islands are evergreen destinations where people absolutely want to go.
The control of our own seat supply and our frequency of flying, allow us to offer truly variable duration holidays, critical in allowing our Customers the ability to flex their holiday arrangements to suit their individual budgets.
Jet2 blasts UK airports over ‘inexcusable’ failures
Airline Jet2 has launched a stinging attack on British airports, saying they had been ‘woefully ill-prepared’ for the return to passengers this summer.
Philip Meeson, Jet2’s executive chairman, said airports’ failure to recruit sufficient staff ahead of the rebound in demand was “inexcusable”, leading to misery for customers.
Meeson pinned the blame firmly on the airports, and their suppliers, for this summer’s travel chaos, which has led to many thousands of flight cancellations.
Meeson also heavily criticised a number of key suppliers for poor planning, including on-board caterers and providers of passenger-mobility services.
He told the City that:
Broadly, most of our 10 UK Base Airports have been woefully ill-prepared and poorly resourced for the volume of customers they could reasonably expect, as have other suppliers, such as Onboard Caterers and providers of Airport PRM (Passengers with Reduced Mobility) services.
Inexcusable, bearing in mind our flights have been on sale for many months and our load factors are quite normal.
In its preliminary results for the last year, Meeson explains:
Theirs and the Ground Handling suppliers’ often atrocious customer service, long queues for Security Search, lack of Staff and congestion in Baggage Handling Areas, and the consequent airport congestion, together with the frequent lack of onboard catering supplies, have each contributed to a very much poorer experience at the start and finish of our Customers’ holidays than they were entitled to expect.
Inevitably, these customer-facing challenges have put extra pressure on our Colleagues, both in the UK, onboard our aircraft and in our holiday destinations.
This difficult return to normal operations has occurred simply because of the lack of planning, preparedness and unwillingness to invest by many Airports and associated Suppliers.
Currys passes rising costs onto shoppers
Electricals goods retailer Curry’s has warned that the cost of living squeeze is likely to hit sales, as it passes on rising costs onto customers.
Curry’s reported this morning that the cost of goods is rising:
On most products we pay in local currency when the goods arrive in our markets, the price increases we are seeing at the moment will be felt by all of our competitors as well.
These costs are passed on to consumers, but we seek to proactively mitigate through providing similar, different specification products at alternative price points.
Curry’s also flags that its operating costs are rising faster than it expected, including dramatic increases in energy and fuel costs.
Finally, inflation is very likely to create a headwind to consumer spending and impact sales, particularly in some of our more discretionary categories, Curry’s reported.
Despite these pressures, Curry’s pre-tax profits almost quadruped to £126m in the year to the end of April.
Shares in Curry’s have jumped 7.5% in early trading. Victoria Scholar, head of investment at Interactive Investor, explains:
Currys is defying the gloomy headlines, jumping almost double digits despite lowering its profit forecast for this year and next year amid uncertainty around the outlook for UK consumer spending.
Investors were encouraged by Currys’ full-year 2022 top and bottom line beats. Adjusted EBIT came in at £274 million versus expectations for £245 million while profit before tax hit £186 million, also ahead of consensus. Full-year group sales rose 24%, higher than expected thanks to the return to bricks and mortar shopping post pandemic.
Despite the uncertain macroeconomic backdrop, Currys said encouragingly that the size of the overall tech market is larger than pre-pandemic and the company announced a full-year dividend of 3.15p versus expectations for 3.10p. However it wasn’t all good news. Free cash flow came in below expectations and its full-year 2023 profit before tax guidance hit £130-150 million, below expectations for £145 million amid the UK’s growing economic uncertainty.
Currys shares jump after reporting a full-year beat on the top and bottom lines with investors shrugging off a downgrade to its profit guidance for this year and next. pic.twitter.com/6PeafWMrf1
— Victoria Scholar (@VictoriaS_ii) July 7, 2022
Ladbrokes owner cuts online betting outlook as customers spend less
The cost of living squeeze is hitting online betting.
Ladbrokes and Coral betting shops owner Entain has seen a 7% drop in online net gaming revenue in the second quarter of this year, as customers cut back.
Entain, which owns bwin and partypoker, has cut its forecasts for online gaming revenue this year, and warned that the macro-economic outlook is uncertain:
A weaker macro-economic environment is reducing customers’ rate of spend, moderating overall Online growth versus our previous expectations
Entain’s online gaming revenues are now expected to be flat for the full-year, down from a previous forecast of mid-to-high single-digit growth.
Gambing firms profited from a surge in online betting during the pandemic, from customers stuck at home during lockdowns. But now, rising fuel and food costs are forcing customers cut spending on non-essential items.
Entain’s shares have dropped 3.7% in early trading.
Halifax’s house price index shows a much larger increase than rival Nationwide’s report last week (which flagged a slowdown in June).
EY ITEM Club Martin Beck predicts housing inflation must surely run out of steam soon – but house prices are unlikely to fall, saying:
- A significant 1.8% monthly increase in the Halifax measure of house prices in June was well above expectations. June’s increase pushed up annual price growth to 13%, the highest since late 2004.
- While still-rapid growth in house prices is bad news for first-time buyers, the boost to home-owners’ wealth and sentiment from rising prices might offer some useful support to consumer spending amid cost of living pressures.
- Given increasingly stretched affordability and rising mortgage rates, the EY ITEM Club believes house price inflation must surely run out of steam soon. But cost of living pressures are being borne disproportionately by low-income, primarily renting households, not better-off home owners. And low unemployment will reduce the risk of forced selling. So house prices are far more likely to see slower growth than a decline.
UK house prices continued to shrug off cost of living fears in June, posting the biggest monthly rise since early 2007, according to Halifax https://t.co/FQMLV7uyxD
— Bloomberg (@business) July 7, 2022
Northern Ireland and Wales see fastest house price inflation
Here’s a regional breakdown of UK house price growth from Halifax:
- Northern Ireland once again topped the table for annual house price inflation, up by 15.2%, equating to an average property price of £187,833.
- Wales also continues to record a strong rate of annual growth, up by 14.3%, with an average property cost of £219,281.
- Meanwhile the South West saw the highest annual house price growth of any region in England, at 14.2%, where a typical home now costs £308,128.
- Scotland too saw an increase in the rate of annual house price inflation, up to 9.9%. A Scottish home now costs an average of £201,549, breaking through £200,000 for the first time in history.
- London continues to lag behind other regions in terms of annual house price inflation (+7.1%), though with an average property price of £547,031 it remains by far the most expensive place in the UK to buy a home.
Shares in Persimmon have dropped 5% in early trading, after telling the City it built fewer homes than expected in January-June.
Persimmon: House completions hit by delays and shortages
Planning delays, problems obtaining materials, and a shortage of construction workers slowed the number of houses which Persimmon it could build this year.
Britain’s biggest housebuilder reports that it completed 6,652 houses in the first half of 2022, slightly less than expected.
That’s down from 7,406 in the first half of 2021, pulling Persimmon’s revenues down to £1.69bn from £1.84bn.
But despite this, Persimmon expects profits for H1 to be ‘modestly above’ its expectations.
Dean Finch, Persimmon’s chief executive, said:
As we rebuild our outlet position, delays in the planning system, disruption in material supply chains and challenges in securing labour have impacted completions in the period.
We anticipate, however, profit at the half year to be modestly above our expectations reflecting strong demand and positive pricing conditions.
The sheer lack of houses on the market has kept driving prices up, experts agree.
Here’s Jeremy Leaf, north London estate agent and a former RICS residential chairman:
‘Despite concerns over the rising cost of living and interest rates, the excess demand over supply continues to hold sway and is driving activity.
The number of appraisals and listings is increasing but not fast enough to keep up as sellers try to take advantage of the market peak, or at close to it as possible, but transactions are slowing and lengthening.
‘Looking forward, we expect the market won’t be immune to changes in the wider economy and are already seeing signs of a rebalancing but no evidence of major corrections in prices for the time being at least.’
And Jason Tebb, CEO of property search website OnTheMarket.com:
The supply-demand imbalance is behind the continued rise in prices, although this is slowly improving as more stock becomes available. Signs of an inevitable, yet subtle, rebalancing of the market, are already evident.
The ‘new normal’, an elevated version of the pre-pandemic market, continues, with serious property seekers still determined to move.”
Some snap reaction:
The Halifax says average house prices climbed £18,849 in the first half of 2022. That works out at a staggering £104 rise a day.
— simon read (@simonnread) July 7, 2022
Halifax house price index: UK prices up 13% in year to June, highest since 2004:
“Scotland saw an increase in the rate of annual house price inflation, up to 9.9%. A Scottish home now costs an average of £201,549, breaking through £200k for the first time in history”— Douglas Fraser✒️🎥🎙 (@BBCDouglasF) July 7, 2022
House price growth likely to slow, Halifax adds
Despite continuing to climb in June, house prices inflation will surely slow as the squeeze intensifies.
Halifax managing director Russell Galley says:
“Of course, the housing market will not remain immune from the challenging economic environment. But for now it continues to demonstrate – as it has done over the last couple of years – the unique combination of factors impacting prices.
One of these remains the huge shift in demand towards bigger properties, with average prices for detached houses rising by almost twice the rate of flats over the past year (+13.9% vs +7.6%).
In time though increased pressure on household budgets from inflation and higher interest rates should weigh more heavily on the housing market, given the impact this has on affordability. Our latest research found that the strong rise in property prices over the last two years, coupled with much slower wage growth, has already pushed the house price to income ratio up to a record level.
So while it may come later than previously anticipated, a slowing of house price growth should still be expected in the months ahead.”
Introduction: UK property prices up 1.8% in June despite squeeze
Good morning, and welcome to our rolling coverage of business, the world economy, the financial markets and the cost of living crisis.
UK house price inflation accelerated last month despite the cost of living squeeze, mortgage lender Halifax has reported this morning.
Halifax’s latest house price index shows that prices jumped by 13% in the year to June — the fastest since late 2004 — up from 10.7% in May. This took the average price to a new record high of nearly £295,000, even as interest rates rose and inflation surged ahead of incomes.
British housebuilder Persimmon also sounds confident this morning, forecasting robust demand for new homes, despite predictions of an impending slowdown in the housing sector.
In monthly terms, Halifax says, prices rose by 1.8% after a 1.2% increase in May from April as the “market shows resilience”. That’s the fastest growth since 2007.
Prices have now risen for 12 months in a row, on Halifax’s index, points out property agent Emma Fildes of BrickWeaver.
Halifax says:
- House prices increased by 1.8% in June, the twelfth consecutive monthly rise
- Annual growth rate of 13% is the highest since late 2004
- Typical property now costs £294,845
- Northern Ireland continues to post the strongest growth in the UK.
Russell Galley, Managing Director, Halifax, says prices are being supported shortages of properties, and by wealthier families, who are not being hit as hard by the cost of living crisis.
“The UK housing market defied any expectations of a slowdown, with average property prices up 1.8% in June, the biggest monthly rise since early 2007. This means house prices have now risen every month over the last year, and are up by 6.8% or £18,849 in cash terms so far in 2022, pushing the typical UK house price to another record high of £294,845.
The supply-demand imbalance continues to be the reason house prices are rising so sharply. Demand is still strong – though activity levels have slowed to be in line with pre-Covid averages – while the stock of available properties for sale remains extremely low.
Property prices so far appear to have been largely insulated from the cost of living squeeze.
This is partly because, right now, the rise in the cost of living is being felt most by people on lower incomes, who are typically less active in buying and selling houses. In contrast, higher earners are likely to be able to use extra funds saved during the pandemic, with latest industry data showing that mortgage lending has increased by the highest amount since last September.
Also coming up today
We’re poised for the Competition and Markets Authority to release its report on the fuel retail market.
The inquiry, requested by business secretary Kwasi Kwarteng last month, will focus on whether the 5p fuel duty cut announced in March by former Chancellor Rishi Sunak was being passed on to consumers.
After hitting its lowest level since the start of the pandemic yesterday, the pound is hovering around $1.195 this morning as investors watch Boris Johnson grip desperately onto power.
European stock markets are set for a strong open, having dropped sharply earlier this week on growing concerns of a recession.
Britain’s fiscal watchdog, the Office for Budget Responsibility, publishes an annual report on the long-term sustainability of the public finances and the fiscal risks facing the UK.
That’ll show the challenge facing new chancellor Nadhim Zahawi, as he hints that a planned rise in corporation tax could be reduced or ditched.
Sainsbury’s shareholders will vote on whether the UK’s second largest supermarket should become a Living Wage employer, at its AGM today.
The resolution, backed by a coalition of investors including Legal & General Investment Management, Coutts & Co, and the Coal Pensions Board, calls on Sainsbury’s to pay the independently set living wage for all staff and contracted workers.
Sainsbury’s has raised pay for its 171,000 direct employees across more than 1,400 stores in the UK to the living wage, but not contractors.
The agenda
- 7am BST: Halifax index of UK house prices in June
- 9.30am BST: UK’s Office for Budget Responsibility publishes its Fiscal risks and sustainability report
- 9.30am BST: ONS weekly real-time indicators of economic activity and social change
- 11am BST: Sainsbury’s AGM begins
- 12.30pm BST: ECB publishes accounts of its last monetary policy meeting
- 1.30pm BST: US trade data for May
- 5pm BST: Bank of England chief economist Huw Pill speech on ‘The Economic situation and monetary policy’.
